Distribution of Surplus Funds
Several homeowners have asked about what
happens at yearend if the assessment monies collected from them exceed the Association's expenses. They want to
know if the money should be returned to them, and if not, where does it go?
answer to the question depends on whether this is a surplus from regular quarterly owner assessments or a surplus from
special assessments. Here’s the answer to both:
Regular Quarterly Assessment Surplus
Florida Statute 617.0505 says “Except as authorized in s. 617.1302 (dissolution),
a corporation may not make distributions to its members, directors, or officers.” This means that a common surplus
of funds resulting from income exceeding expenses cannot be returned directly to the unit owners and an alternative disposition
must be used. The alternate disposition of excess funds can be:
Credited towards the next year’s budget for the benefit
of unit owners in the same percentage as their ownership in the common elements (this is most common), or
Allocated to the reserve accounts of the association.
Paragraph 9.1(a) of Jupiter Bay’s bylaws says “Current Expense, which shall include all receipts and expenditures
within the year for which the Class A and Class B Budgets are made including a reasonable allowance for contingencies
and working funds, except expenditures chargeable to reserves, to additional improvements or to operations. The balance
in this fund at the end of each year shall be applied to reduce the assessments for Class A and Class B expenses for the succeeding
Special Assessment Surplus
Special Assessment are treated differently in that they can either be returned to the unit owners or applied
as a credit toward future assessments.
This is clarified in Florida
Statute 718.116(10), which says “The specific purpose or purposes of any special assessment, including any contingent special
assessment levied in conjunction with the purchase of an insurance policy authorized by s. 718.111(11), approved in accordance
with the condominium documents shall be set forth in a written notice of such assessment sent or delivered to each unit owner.
The funds collected pursuant to a special assessment shall be used only for the specific purpose or purposes set forth in
such notice. However, upon completion of such specific purpose or purposes, any excess funds will be considered common surplus,
and may, at the discretion of the board, either be returned to the unit owners or applied as a credit toward future assessments.”
Preparing the Annual Budget
The Association's annual budget determines:
- How much money is allocated
to each of the various operating expense items,
- Funding for the reserves (deferred maintenance & capital expenditure
- Quarterly owner maintenance assessments for each of the 8 individual associations.
Please reference the "Annual Budget" page of this website for a comprehensive description
of the annual budget preparation process.
Since Taking Over in April, 2015, the New Board Made Significant
Improvements to JB's Financials
Many improvements have been made to assure the quality and transparency of Jupiter Bay's financial
systems and records:
- The Peachtree (SAGE 50) accounting software was replaced with the industry-standard QuickBooks
software. This allows multiple people (office staff, treasurer, president) to have cloud access to the Association's
accounting records for inquiry and analysis.
- In-house maintenance of our financial records by an administrative assistant
was replaced with professional contracted bookkeeping services.
- Additional effective financial controls were
introduced to assure proper checks & balances, helping to prevent fraud or abuse?
on the various financial reports (accounts receivable, accounts payable, reserve schedule, treasurer's report) now reconciles
(to the penny) with Balance Sheet data.
- Coupon books, for the collection of quarterly maintenance fees, are being
supplemented by late notices and other correspondence to delinquent owners.
- The Association's chart-of-accounts
was restructured and simplified, with a cleared distinction between community common and building/association accounts.
This greatly improves budgeting, analysis/comparisons and owners' understanding of the Association's finances?
- Regular monthly
financial reporting was re-instituted using a standard 8-section document, providing board members and interested owners with
comprehensive and straightforward financial information in a clear and transparent format?
- Adjustments were made
to help assure the appropriate allocation of expenses to the individual associations (buildings) and the community
shared common areas.
- Standard formulas (per FL Administrative Code 61B-22) are again being used for calculating reserve
- Annual Budget Committee meetings are being held to provide owner input.
cost and useful life estimates are being easily and accurately estimated from inflation-adjusted prior capital expenditures
and updated vendor quotes.
- Budget modeling software is being used to more accurately project expenses and assure
appropriate fee schedules across the 8 Jupiter Bay associations.
The Mailbox Rule
There is frequently confusion or misinformation regarding the effective date of a document
(legal notice, contract, check, etc.) that is sent via US mail. The actual effective date is consistent and is
based on the Mailbox Rule. The rule says that it's always the date mailed (i.e., the postmarked date) as shown in the
- Acceptance of a contract is effective when it is mailed.
- The effective date
of a Claim of Lien or Foreclosure notice is defined by statute as the date of mailing.
- Florida courts have been
clear about when owner assessment payments should be credited (when mailed, not when received).
Budget & Reserves Training
Here's a self-study training manual on Budget and Reserve Schedules. The manual provides important
information for the Treasurer, other board members and interested owners. It was published by the Department
of Business & Professional Regulation, which is a part of the Division of Florida Condominiums, Timeshares, and Mobile
Homes. The manual includes training material, with definitions, examples, checklists, and a series of practice exercises.
Click here to download Self-Study Manual
Jupiter Bay's Financial Policy
The Association President in 2013 asked Paul St.Clair, who wrote Jupiter Bay's original Financial Policy, to update
the policy to conform to current statutes, code and procedures. This task was initially completed in February,
2014, and since then eight policy drafts were developed, sent to Board members, and reviewed with Jupiter Bay Treasurers
and bookkeeping staff. The "final" version was approved by the Board of Directors at the May 20th Board Meeting.
This release extensively references the Association's Condominium Documents and Florida statutes.
"No Exception" Policy
. The Association's June, 2013 Newsletter announced a "NO
EXCEPTION" policy regarding late-payment penalties. This "policy" was never brought up for a Board vote,
and it is absent from the Association's published Financial Policy. The new Board may wish to revisit the policy.
This "No Exception" policy may be in conflict with the Community Association Institute, that says Community
Leaders have the responsibility to: "Devise appropriate and reasonable arrangements, when needed and as feasible, to
facilitate the ability of individual homeowners to meet their financial obligations to the community".
Commingling of Funds
Does the Association commingle funds and is it legal? The simple answer to both questions is YES. Commingling
is when funds (cash) are mixed between Operating and Reserve investment accounts and among condominiums in a multicondominium
community. Florida statutes allow commingling of cash within certain restrictions. However, the Association’s
books must accurately reflect at all times the exact funds in the reserve and operating accounts.
Florida Statute 718.111 (14) establishes commingling rules as follows:
- For investment purposes only, reserve
funds may be commingled with operating funds of the association.
- Commingled operating and reserve funds shall be accounted
for separately, and a commingled account shall not, at any time, be less than the amount identified as reserve funds.
multicondominium association is not prohibited from commingling: the operating funds of separate condominiums, the reserve
funds of separate condominiums, or all funds for investment purposes only.
In addition, Florida Administrative
Code 61B-22.005(2) requires Associations that collect operating and reserve assessments as a single payment to transfer the
reserve portion of the payment to a separate account, or accounts, within 30 calendar days from the date the funds were deposited.
Commingling is important in the day-to-day management of the Association’s finances because it allows the Association
to fund Reserve Accounts and spend Reserve money without having to constantly move cash into and out of the Reserve Investment
Account. Any time that the Association’s Balance sheet shows money due to/from the Reserve Account, there is commingling
of funds. This Asset/Liability entry is prevalent in most of Jupiter Bay’s monthly financial report. Also,
Jupiter Bay has always commingled the Operating Funds of its 8 associations.
Multicondominium Association Accounting 101
Jupiter Bay has 8 separate condominium associations (East, Villas and 6 West buildings), each with their own financial
records, as well as a Master Association. Multicondominium Association accounting requires all income and expense to
be posted to the correct association. This is true for both Operating and Reserve accounts. Operating Accounts
are used for day-to-day operation of the association, whereas master and individual condominium Reserve Accounts
required for capital expenditures and deferred maintenance.
Condominiums use Accrual Accounting, rather than Cash Basis,
for tracking and recording income and expenses. This means that income exists when owner invoices are generated, and
expenses exist when vendor bills are entered into the accounting software. At the end of each year an Annual Financial
Statement Audit is conducted as required by Florida statutes. The Annual Audit reviews the accounting records and
calculates cash balances for the Operating Account(s). Jupiter Bay maintains its own Reserve Account balances on a Reserve
Schedule that is maintained monthly and presented to owners each year as a part of the Annual Budget.
For many recent years, including 2012, Jupiter Bay has not had a Multicondominium Audit, meaning that separate
Operating Fund balances were not calculated for each individual condominium association. In fact the 2012 auditor's
statement said "The Association has not treated each condominium separately for audited financial statement purposes,
but has maintained internal separate financial records by each condominium." A Multicondominum Audit was performed
for 2013 and 2014.
In a Multicondominium Association there are two ways that operating account records can be accurately
maintained to assure that owners in each individual association are charged correct maintenance fees:
separate Operating fund balances for each association, or
- Track income and expenses individually for each association
and determine, at the end of each year, whether the association has an Operating Fund surplus or shortage. Then, credit or
charge the association this surplus or shortage in next year's budget. For example, if an association has 32 units and a $3,200
shortage in 2012, each owner would pay an additional $100 annual ($25 quarterly) maintenance fee in 2013.
for the first 3 of the last 5 years (2010-2012) used the second method in calculating quarterly owner maintenance fees.
For 2013, neither method was used, and maintenance fees were artificially frozen at the prior year (2012) values. It's
unclear how the Treasurer accounted for fund balance differences in determining 2014 maintenance fees. Owner maintenance
fees were again frozen artificially for 2015 at prior year values with no consideration for differing building surpluses,
deficits and expenditures.
FLCAJ Salary Survey
To find out what other condominium associations are paying their employees, please click on the link below to obtain
the Florida Community Association Journal's 2012-2013 Salary Survey.